Flexibility is the key for successful Chinese joint ventures, says the latest CIMA (Chartered Institute of Management Accountants) report entitled "Management Controls in Automotive International Joint Ventures involving Chinese Parent companies."
As China embarked on its ‘opening up’ policy, a primary objective for encouraging foreign investment was to facilitate domestic learning via knowledge transfer from international companies, often through the establishment of a joint venture. Almost thirty years on, CIMA’s research now shows that China’s objectives have shifted away from learning and knowledge acquisition to profit, growth and market share.
Foreign joint venture partners need to be aware of these new objectives and adapt their control mechanisms appropriately.
The report studies the management controls in four automotive joint ventures in China and identifies a “split but shared” management style as being the most successful. This involves an equal number of representatives on the board plus consensus decision making and also allowing each partner to take control of particular functions in areas where they possess greater technology or knowledge.
When foreign partners insisted on adherence to their own management and philosophy style, culture clashes occurred.
“Foreign investors are understandably attracted by the vast and increasingly wealthy domestic market in China, but while this strong market provides more opportunities for multinational companies, it also awards Chinese partners stronger bargaining power," explains Naomi Smith, CIMA R&D Manager.
"Combined with shifting objectives from learning to profitability, it’s unsurprising that Chinese partners want to be more actively involved in managing the entire range of activities within the joint venture. The shared but split management style outlined in this report is the best model to adopt.”
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